According to section 39-10-114(1)(a)(I)(A) of the Colorado Revised Statutes a taxpayer may file for an abatement of all or part of property taxes that have been levied “erroneously or illegally” within two years after January 1 of the year following the year in which the taxes were levied. The abatement provides for a refund of taxes due to “erroneous valuation for assessment”, “irregularity in levying”, “clerical error” or “overvaluation” and is different and separate from the “normal” property tax appeal process. 

In the recent case of HealthSouth Corporation v. Boulder County Board of Commissioners and Colorado State Board of Assessment Appeals, HealthSouth put this abatement provision to the test. 

HealthSouth filed two abatement petitions seeking to reduce the valuation of its personal property assets at two of its Colorado locations for the 2002 tax year. Now for the twist… 

In 2002 HealthSouth was found to be cooking its books and inflating earnings. In order to balance these cooked books HealthSouth created fictitious assets. The case reads: 

“The factual basis for the taxpayer’s abatement and refund claims is that in 2002, as part of a broader fraudulent scheme to increase the company’s stock price, taxpayer included fabricated valuations for fictitious assets in the personal property declaration schedules it filed.” 

So, HealthSouth’s new management filed abatement petitions with the Board of County Commissioners (BOCC) seeking to reduce the personal property taxes it “overpaid” due to the reporting of nonexistent assets. The BOCC denied the petitions. Appeals were then filed to the Board of Assessment Appeals and were dismissed. HealthSouth appealed to the Court of Appeals. In a nutshell, the Court of Appeals determined: 

“Contrary to the BAA’s ruling, we conclude that, under the statutory scheme, taxpayer has the right to proceed with its abatement and refund claims on the ground of overvaluation, notwithstanding the fraudulent overstatement of its assets and valuations in its initial tax filings. Consequently, the BAA erred in dismissing taxpayer’s appeals without affording an evidentiary hearing, and on remand it must consider the merits of the taxpayer’s overvaluation claims concerning its personal property for the 2002 tax year.” 

I am looking forward to seeing how this will ultimately turn out. It will be interesting to see what HealthSouth provides as evidence to prove that the valuation of nonexistent assets was incorrect.